Market Overview

Best's Market Segment Report: Legal Professional Liability Insurers Address Changing Claim Trends, Emerging Risks

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Following a period of depressed profitability as a result of the
most-recent real estate and broader financial crisis, legal professional
liability insurers have posted more favorable results, culminating in a
combined ratio of 89.8 in 2017, compared with an average combined ratio
of 104.6 in 2008-2011, according to a new A.M. Best report.

The new Best's Market Segment Report, titled, "Legal Professional
Liability Insurers Address Changing Claim Trends, Emerging Risks," notes
that although the recession affected the entire U.S. property/casualty
market, the elevation in the combined ratio for A.M. Best's composite of
legal professional liability insurers was starker than that of the
overall commercial casualty composite. The economic downturn produced a
sharp uptick in lawsuits brought by disgruntled clients, and as claims
frequency against lawyers began to moderate, results for the legal
professional liability composite improved notably. Net income has
trended favorably after sinking to $9.8 million in 2009, and in 2017,
totaled $40.9 million.

Outside of a few exceptions, the companies that make up A.M. Best's
legal professional liability composite are primarily mutual insurance
organizations or specialty, single-state insurers that serve just
attorneys that are members of state bar associations with the principal
practice in the state of domicile. Factors considered to be most
critical to the success of smaller law firms include acquiring new
business, addressing client demands for lower rates, maintaining
cost/expense control and reducing time spent on administrative tasks.
The legal professional liability insurance companies underwriting these
small law firms must understand these factors in order to develop
adequate risk management advice and coverage solutions.

Going forward, A.M. Best believes there are a number of trends that
could temper the improved profitability in the legal professional
liability sector. Claim severity is escalating, and in particular, the
cost to defend legal professional liability malpractice claims has been
increasing as plaintiffs have experienced greater success via
persistence. Additionally, the changing landscape of legal service
delivery and the utilization of enhanced technology present small law
firms a new set of challenges, though improved technologies have helped
decrease legal costs and improve access to legal information.

Legal professional liability insurers will need to deal with the impact
of the changing marketplace on their clients. More online-only legal
service providers have emerged, but the report notes that they may not
be a capable substitute for an actual attorney, in terms of the ability
to provide a complete array of legal services. Should potential clients
decide to employ these services to a greater degree, the impact on the
premium revenue for insurers of law firms likely would be negative if
those firms lose sources of fee income. Moreover, the pending
large-scale exit of baby boomers from the workforce will bring about
further changes in workplace dynamics that could also affect premium
volume.

For the full copy of this market segment report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=276016.

A.M. Best is the world's oldest and most authoritative insurance
rating and information source. For more information, visit
www.ambest.com.

Copyright © 2018 by A.M. Best Rating Services, Inc. and/or its
affiliates.
ALL RIGHTS RESERVED.

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